Q: Can I use my RRSP's for purchasing a Home?
A: The Home Buyers' Plan (HBP) is a program under which you can, generally, withdraw up to $20,000 from your Retirement Savings Plan (RRSPs) to buy or build a qualifying home. Withdrawals that meet all applicable HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts. However, before you can withdraw funds you must have entered into a written agreement to buy or build a qualifying home which you must occupy no later than one year after buying or building the home.
If you buy the qualifying home together with your spouse or other individuals, each of you can withdraw up to $20,000. You cannot withdraw an amount from your RRSP under the HBP if you or your spouse owned the home more than 30 days before the date of your withdrawal.
Up to $20,000 per person could be withdrawn tax-free from RRSPs to buy or build a principal residence. Couples -- including common-law -- will be able to withdraw up to $40,000.
You have to meet the first-time buyer's condition. You are not considered a first-time home buyer if you or your spouse owned a home that you occupied as your principal place of residence in the past 5 years. To determine past 5 years, the 4 years preceding the year you make your withdrawal plus the period in the year you make your withdrawal ending 31 days before your withdrawal is the rule adopted.
Home buyers withdrawing funds do not have to pay income tax on the amount withdrawn, as long as the funds are repaid into an RRSP in the future.
The 15-year repayment period will begin in the second calendar year following the calendar year in which the withdrawal is made. In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal. For example, those making withdrawals under the plan in 2000 will have until October 1, 2001 to acquire a qualifying home and their first annual repayment will be due by the end of 2002 or the first two months of 2003.
A special rule denies a tax deduction for contributions to an RRSP that are withdrawn within 90 days of the RRSP deposit being made. Consequently, to get the normal tax break for a contribution and to use those funds under the plan, the money must be in your RRSP for at least 90 days before a withdrawal is made.
You can participate in the HBP more than once if:
Your HBP balance for your previous participation is zero on January 1 of the year you want your new participation in the HBP to occur; and
You meet the first-time buyer's condition and all other HBP conditions that apply to your situation.
Existing homeowners can use the HBP to purchase a more accessible home or a home for a disabled dependent relative where the individual withdrawing the funds:
Qualifies for the disability tax credit (DTC) and is buying a home that is more accessible for the individual or is better suited for the care of the individual;
Is related to a disabled individual who qualifies for the DTC and is buying a home for the benefit of the disabled individual that is more accessible for, or better suited for, the care of the disabled individual, or;
Is related to a disabled individual who qualifies for the DTC and is withdrawing an amount for the disabled individual to buy a home that is more accessible for, or better suited for, the care of the disabled individual.
For more information call 1-800-959-8281 or visit Revenue Canada's web site here.
RRSP HOME BUYER PLAN REQUIREMENTS
FIRST TIME BUYER: REQUIREMENTS
You must be a first time home buyer or you must not have owned a home in the last five (5) years. Provided you satisfy all requirements, you may re-activate the program.
You must use the home as your principal residence in Canada .
ANY HOME (NEW OR RESALE):
The home can be new from the builder or resale.
90 DAY DEPOSIT:
R.R.S.P. funds must have been on deposit for at least 90 days before they can be used under the program.
FUNDS FOR ANY USE:
The funds can be applied to the down payment, land transfer tax, legal fees and disbursements, improvements to the home, even furniture and appliances.
MAXIMUM $20,000 PER BUYER
You can borrow up to a maximum of $20,000.00 from your RRSP. tax free. The maximum for two spouses is $40,000.00.
After an initial grace period of two full calendar years (plus the balance of the year in which the withdrawal occurred) you are required to pay back the funds borrowed over a period of 15 years by depositing 1/15th of the amount withdrawn, annually to your RRSP. Prepayments are allowed at any time without penalty. However, if you miss a payment for any given year, you will not be allowed to pay it back and it will be included in your taxable income for that year.